The paper 'American Apparel Strategic Analysis" is a great example of a business case study. American Apparel is a clothing manufacturer that was founded in 1998 in Los Angeles. The company adopted vertical integration as its strategy for growth. This strategy involved ownership of the entire supply chain where the company’ s activities included knitting cotton yarns, cutting, design, sewing, dyeing, finishing, distribution, marketing, and retailing (Hill & Jones 2011, p. 180). In its early years, the company experienced tremendous success with targeted growth rates being as high as 20% in 2009. However, the company issued a bankruptcy in warning in 2010 after the external auditor discovered issues with the way the company managed its finances.
Instead of focusing on growth, American Apparel shifted its strategy towards cost reduction and financial restructuring to survive. This paper looks at the strategic issues and problems that contributed towards the American Apparel’ s decline. This will be followed by an analysis and evaluation of these issues. Finally, the paper will provide strategic recommendations on how the company can regain its competitive advantage and meet its varying aims and objectives. Strategic Issues and Problems According to Grant (2012, p.
655), the conventional strategy adopted by the successful businesses in the clothing industry involved outsourcing production to foreign countries with low wage rates. An examination of American Apparel shows that it took a different approach where all manufacturing activities were retained in the US. Significantly, the wage rates in America are considerably higher than in Asian countries. The issue with wages was further compounded by the company paying entry-level workers over double the country’ s minimum wage and providing benefits like subsidised lunches, healthcare and auto insurance to all employees.
The company hoped that by retaining production in America, it would achieve the flexibility and speed needed to be effective in the rapidly changing business environment. The organisation also hoped that it would develop a positive image and brand that would allow it to charge high prices. A look at the history of the founder can explain the decision to adopt vertical integration. Dov Charney, the founder of the company, had operated a similar business before starting American Apparel. According to Grant (2012, p.
657), Charney invested $10,000 in the business, and it outsourced production to a clothing manufacturer in South Carolina that would later stop production. The reliance on the manufacturer and its sudden closure led to the collapse of Charney’ s business. This experience might explain Charney’ s aversion to following the conventional outsourcing strategy that had contributed to the success of competitors like Nike (Schermerhorn 2010, p. 20). As such, it can be argued that the choice of vertical integration was influenced by Charney’ s negative experience with outsourcing. The other strategic issue at the company can be seen in its rapid growth.
Grant (2012, p. 658) notes that the company’ s initial focus was on meeting the needs of screen printers who handled the design and retailing aspects of the business. The company then shifted its focus away from its core competency of producing high-quality blank T-shirts to designing and retailing the final product. This change in strategy began as an experiment when the company opened its first retail store in October 2003. By the end of 2004, the company managed 34 stores in the US and had already expanded to the UK.
The company’ s rapid growth was hastened by the acquisition of more capital through its listing at the NYSE which led to more retail stores and expansion into new international markets. By 2012, the company managed 249 retail locations in 20 countries and also sold to over 10,000 screen printers and dozens of distributors. A later review of the company’ s performance led to the closure of 32 stores that were found to be unviable (Grant 2012, p. 665). While many organisations want to grow, rapid growth can be detrimental to the success of the business.
In the case of American Apparel, the rapid growth shifted focus away from other weaknesses in the company’ s internal environment.
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